Considering the profit margins that they routinely offer, commercial waste collection accounts are highly sought after by haulers. The contracts often allow firms to collect and move larger volumes of waste than they would collect from residences without making as many route stops.

When firms go hunting for such accounts, they will find that local governments have crafted a variety of competitive landscapes. On one end of the spectrum is a closed system, in which only one hauler, whether a solid waste department or a private company, has the exclusive rights to a customer base. At the other end is an open competition system, in which anyone with a truck and a bin can vie for accounts.

The various competitive frameworks offer a jurisdiction different advantages. A closed system allows a local government to provide effective oversight of one hauler while minimizing the damage to infrastructure from having multiple companies with collection trucks on the roads. In such a system, the city or county establishes the standards for the hauler's operation and usually approves the rates that are charged to commercial customers. Rate structures are open to public review, and all accounts are charged the same fees.

An open competition system allows a community's businesses to secure a service arrangement at the lowest possible price, but relies on each individual entity to shop for those rates. A system such as this could lead to situations in which two neighboring businesses are paying different rates for essentially the same service. In addition, a jurisdiction may bear indirect costs from damaged infrastructure and increased traffic congestion from more firms having refuse trucks on the streets.

Commercial waste forms a significant portion of municipal solid waste (MSW), says the U.S. Environmental Protection Agency (EPA), Washington. In 2003, waste from commercial locations — such as retail stores, office buildings, industrial complexes and restaurants — constituted about 40 percent of all MSW, according to EPA.

All to Itself

Ontario, Calif., provides trash collection services to its 170,000 residents and 5,800 commercial businesses in a closed system. Commercial recycling accounts, however, are subjected to open competition. To service businesses, the city operates 12 front-loader routes, two recycling routes, and between nine and 11 roll-off routes each service day.

Periodically, private haulers, particularly those providing recycling services for construction and demolition (C&D) sites, will attempt to provide trash service within the city limits, says Bob Figoni, assistant utilities director for Ontario. This requires the city to enforce its operating franchise.

When the city discovers a private firm's trash containers on a site, it requests that the bins be removed. Ontario officials also will give the firm a written notice that the containers will be impounded if not removed within seven days. “There is no fine provision in the municipal code,” Figoni says.

Contradicting the conventional wisdom, Figoni argues that being the exclusive hauler creates operational efficiencies that would be more difficult to achieve in a competitive environment. “When I was in the private sector, the relationship between the company and the city was always a factor,” he says. “The company would want to meet the needs of the city, but there was always a little bit of tension about who was going to pay for what and what [it was] going to cost to provide various services that the city wants. With the city being the hauler, it's like we're having that conversation with ourselves.”

“Both the collection operation and the management of solid waste are on the same page,” Figoni adds. “Our goal is to provide the services that the city needs, and the profit motive isn't there. That's not to mean that we're not looking for efficiencies just like a private company, but the profit motive wouldn't get in the way of doing the right thing.”

Open competition results in lower rates, Figoni observes. “If there's open competition, it results in lower rates,” he says. But, he maintains that firms often “skimp on equipment” to achieve a lower rate.

“They'll have a lot of older equipment or not-well-maintained bins — things like that,” he says.

Having an exclusive franchise has its risks as well, Figoni says. “Being the exclusive hauler, you can become a little lazy and take for granted that those customers are going to be there,” he says. “Whether you're in the public or private sector, it's something that you need to remember. The customer comes first. In one respect, when the customer doesn't have another place to go, you have an even stronger requirement to provide that customer with the service that they need because they don't have a choice.”

Playing in Peoria

Peoria, Ariz., has a population of 140,000. Under a state law adopted in 1988, cities with more than 60,000 residents must compete with private firms for commercial collections. So the city vies for accounts with six private haulers, including Houston-based Waste Management and Scottsdale, Ariz.-based Allied Waste.

The city runs three front-load routes each day with 150 stops per route to service a total of 410 commercial accounts. Peoria also handles between six and eight roll-offs per day using two trucks.

To service commercial accounts within the city, private haulers must get a municipal permit. “The annual [permit] cost is $6,300 per company — that may be one truck or 20 trucks,” says Jesse Duarte, solid waste manager for the city. “When they submit, it has to go to the City Council for approval.”

Per a city ordinance, haulers are limited as to the times they can operate. They also must submit financial statements to the city every two years that include a list of the customers they service and a summary of the financial standing of the company, according to Beckie Borquez, a department program support assistant.

City officials say the existing system is functioning well. “Right now, it works for all of us,” Duarte says. “The advantage of the system is that we're out there to compete and provide good quality service. We've got to be just like the privates and compete. We're also here to provide rate stabilization.”

He mentions that in Phoenix, which is adjacent to Peoria, the city doesn't provide commercial services. “You can have a Circle K on one corner that's in the city of Phoenix, and the rate may be $150 for a six-yard [container] while our rate may be $60 less. When you get a city in there, a city is basically just covering their costs so that helps to stabilize the rates.”

The Value of Competition

For Cincinnati-based Rumpke Consolidated Cos., whose service area is Kentucky, Ohio and Indiana, the challenges of and opportunities for competition in their five service regions are significant. The company has 300 municipal contracts that cover the entire gamut of collection activities, including commercial, roll-off and industrial.